Short-rate expectations and unexpected returns in treasury bonds
Publication
, Journal Article
Cieslak, A
Published in: Review of Financial Studies
September 1, 2018
I document large and persistent errors in investors' expectations about the short-term interest rate over the business cycle. The largest errors arise in economic downturns and during Fed easings when investors overestimate future short rates and, thus, underestimate future bond returns. At a one-year horizon, errors about the path of the real rate (as opposed to inflation) account for 80% of short-rate forecast error variance, with more than half of that number attributed to the Fed easing more aggressively than the public expected. Short-rate forecast errors induce ex post predictability of excess returns on Treasury bonds that is not due to time-varying risk premium.
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Published In
Review of Financial Studies
DOI
EISSN
1465-7368
ISSN
0893-9454
Publication Date
September 1, 2018
Volume
31
Issue
9
Start / End Page
3265 / 3306
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
- 1402 Applied Economics
- 1401 Economic Theory
Citation
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Cieslak, A. (2018). Short-rate expectations and unexpected returns in treasury bonds. Review of Financial Studies, 31(9), 3265–3306. https://doi.org/10.1093/rfs/hhy051
Cieslak, A. “Short-rate expectations and unexpected returns in treasury bonds.” Review of Financial Studies 31, no. 9 (September 1, 2018): 3265–3306. https://doi.org/10.1093/rfs/hhy051.
Cieslak A. Short-rate expectations and unexpected returns in treasury bonds. Review of Financial Studies. 2018 Sep 1;31(9):3265–306.
Cieslak, A. “Short-rate expectations and unexpected returns in treasury bonds.” Review of Financial Studies, vol. 31, no. 9, Sept. 2018, pp. 3265–306. Scopus, doi:10.1093/rfs/hhy051.
Cieslak A. Short-rate expectations and unexpected returns in treasury bonds. Review of Financial Studies. 2018 Sep 1;31(9):3265–3306.
Published In
Review of Financial Studies
DOI
EISSN
1465-7368
ISSN
0893-9454
Publication Date
September 1, 2018
Volume
31
Issue
9
Start / End Page
3265 / 3306
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
- 1402 Applied Economics
- 1401 Economic Theory